Securities and Exchange Commission
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 4, 1998
Arguss Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-19589 02-0413153
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
One Church Street
Rockville, Maryland 20850
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 315-0027
NOTE:
The Company is amending Registrant's Form 8-K (date of report - September 4,
1998) filed September 18, 1998 to include financial statements of businesses
acquired and pro forma financial information of the Company.
Item 2. Acquisition or Disposition of Assets:
On September 4, 1998, Arguss Holdings, Inc. ("Arguss") acquired Underground
Specialties, Inc. ("USI"), by merger of USI into its wholly owned subsidiary,
White Mountain Cable Construction Corp ("WMC").
USI provides underground construction services for fiber optic cable
construction projects to major telecommunications customers. The purchase price
was approximately $7,500,000, and was satisfied by the issuance of approximately
242,000 shares of Arguss common stock and $3,750,000 in cash. Arguss will issue
up to 33,000 additional shares if the market price of Arguss common stock on
July 31, 1999 is less than $15.50.
The USI purchase agreement contains provision for additional payments satisfied
by the issuance of Arguss common stock and cash if certain minimum EBITDA
thresholds are met for the year ended July 31, 1999. One-half of the additional
payment will be satisfied by the issuance of shares of common stock valued at
the lesser of $15.50 per share or the then market value with a minimum price of
$13.625 per share and cash. Additional payments earned under the terms of the
agreement will be recorded as an increase of the total cost of acquisition.
The USI acquisition has been accounted for as a purchase. The excess of the
total cost over the fair value of the net assets acquired is being amortized by
the straight-line method over twenty years.
<PAGE>
Item 7. Financial Statements and Exhibits:
(a) Financial Statements of Businesses Acquired: Audited balance
sheets of USI as of July 31, 1998 and 1997 and related statements
of income, retained earnings and cash flow for the years then
ended.
(b) Pro Forma Financial Information:
Unaudited pro forma balance sheet of Arguss as of June 30, 1998
and unaudited pro forma statements of operation for the fiscal
year ended December 31, 1997 and for the six months ended June
30, 1998.
(c) Exhibits:
10.01 Agreement and plan of merger dated September 4, 1998 by and
between Underground Specialties, Inc., Arguss Holdings, Inc.
and White Mountain Cable Construction Corp., incorporated by
reference herein to Exhibit 10.01 to the Company's current
report on Form 8-K dated September 4, 1998 filed on September
18, 1998.
23.01 Consent of Barrett & Company, Certified Public Accountants.
Signatures:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Arguss Holdings, Inc.
September 25, 1998
Registrant
By: /s/ Rainer H. Bosselmann
---------------------------
Rainer H. Bosselmann
Chairman of the Board
and Chief Executive Officer
<PAGE>
UNDERGROUND SPECIALTIES, INC.
Financial Statements
and
Independent Auditors' Report
Years ended July 31, 1998 and 1997
<PAGE>
CONTENTS
--------
PAGE
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income (loss) and retained earnings 3
Statements of cash flows 4-5
NOTES TO FINANCIAL STATEMENTS 6-19
SUPPLEMENTARY INFORMATION
Schedule of contract earnings for the year ended July 31, 1998 20
Schedule of contract earnings for the year ended July 31, 1997 21
Schedule of construction contracts in progress at July 31, 1998 22
Schedule of construction contracts in progress at July 31, 1997 23
Schedules of general and administrative expenses 24
<PAGE>
[Letterhead of Barrett & Company]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Underground Specialties, Inc.
Mukilteo, Washington
We have audited the accompanying balance sheets of Underground Specialties, Inc.
as of July 31, 1998 and 1997, and the related statements of income (loss) and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Underground Specialties, Inc.
as of July 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules of contract earnings,
construction contracts and general and administrative expenses are presented for
purposes of additional analysis and it is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Barrett & Company
- --------------------------
BARRETT & COMPANY
September 10, 1998
<PAGE>
UNDERGROUND SPECIALTIES, INC.
BALANCE SHEETS
JULY 31, 1998 AND 1997
----------
1998 1997
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,037,490 $ 230,977
Marketable securities 286,319 120,992
Construction contracts receivable 3,481,851 1,117,191
Other receivables 17,790 137,672
Costs and estimated earnings in excess of
billings on uncompleted contracts 303,098 173,942
Prepaid income taxes 95,200 103,000
Prepaid expenses 20,740 28,759
Deferred income tax asset 33,200
---------- ----------
Total current assets 6,242,488 1,945,733
NOTE RECEIVABLE - STOCKHOLDER 220,967
PROPERTY AND EQUIPMENT 2,147,562 1,773,851
---------- ----------
$8,390,050 $3,940,551
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $2,329,313 $ 511,637
Note payable to bank 450,000 720,000
Accrued expenses 655,337 141,423
Billings in excess of costs and estimated
earnings on uncompleted contracts 260,139 137,673
Long-term debt 568,073 472,044
Capital lease obligations 13,641
---------- ----------
Total current liabilities 4,262,862 1,996,418
LONG-TERM DEBT 567,285 488,266
DEFERRED INCOME TAXES 676,500 116,400
---------- ----------
Total liabilities 5,506,647 2,601,084
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 2,000,000
shares authorized, 1,000,000 shares
issued and outstanding 46,701 46,701
Retained earnings 2,881,020 1,260,209
Unrealized gain (loss) on marketable
securities (44,318) 32,557
---------- ----------
Total stockholders' equity 2,883,403 1,339,467
---------- ----------
COMMITMENTS AND CONTINGENCIES
$8,390,050 $3,940,551
========== ==========
SEE NOTES TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT.
-2-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
YEARS ENDED JULY 31, 1998 AND 1997
----------
1998 1997
---------- ----------
CONTRACT REVENUE $18,679,791 $7,984,847
CONTRACT COSTS 13,307,340 7,777,568
---------- ----------
GROSS PROFIT 5,372,451 207,279
GENERAL AND ADMINISTRATIVE EXPENSES 2,490,483 677,194
---------- ----------
INCOME (LOSS) FROM OPERATIONS 2,881,968 (469,915)
---------- ----------
OTHER INCOME (EXPENSE)
Interest income 41,653 19,779
Interest expense (107,305) (161,993)
Gain on sale of equipment 92,845 238,563
Other income (expense) (47,250) 60,114
---------- ----------
(20,057) 156,463
---------- ----------
NET INCOME (LOSS) BEFORE INCOME TAX
BENEFIT (PROVISION) 2,861,911 (313,452)
INCOME TAX BENEFIT (PROVISION) (1,130,100) 111,305
---------- ----------
NET INCOME (LOSS) 1,731,811 (202,147)
RETAINED EARNINGS, beginning of year 1,260,209 1,462,356
DIVIDENEDS DECLARED AND PAID (111,000)
---------- ----------
RETAINED EARNINGS, end of year $2,881,020 $1,260,209
========== ==========
SEE NOTES TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT.
-3-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1998 AND 1997
----------
1998 1997
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 16,308,441 $ 9,036,025
Cash paid to suppliers and employees (12,873,619) (8,119,784)
Interest received 41,653 1,691
Interest paid (107,305) (161,993)
Income taxes paid (631,600) (176,645)
Income taxes received 102,600
------------ -----------
Net cash provided by operating
activities 2,840,170 579,294
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchased marketable securities (242,202) (88,435)
Payments for property and equipment (1,033,930) (299,301)
Proceeds from the sale of property
and equipment 185,135 709,558
Payments (loans) made on other
receivables (14,034) 315
Collection of loans 70,000
Loans made to shareholders (158,522) (40,000)
Collection on loans to shareholders 379,489 3,000
------------ -----------
Net cash provided (used) by
investing activities (814,064) 285,137
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in note payable to bank (270,000) (310,000)
Payments on short term capital lease
obligations (13,641) (6,376)
Payments on long-term debt (671,458) (930,546)
Proceeds from long-term debt 846,506
Dividends paid (111,000)
-----------
Net cash used by financing
activities (219,593) (1,246,922)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,806,513 (382,491)
CASH AND CASH EQUIVALENTS, beginning
of year 230,977 613,468
------------ -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,037,490 $ 230,977
============ ===========
SEE NOTES TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT.
-4-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1998 AND 1997
----------
1998 1997
------------ -----------
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 1,731,811 $ (202,147)
------------ -----------
Adjustments:
Depreciation 574,929 613,213
Gain on equipment sales (92,845) (238,563)
Deferred income taxes 593,300 (119,000)
Change in assets and liabilities:
Construction contracts receivable (2,364,660) 448,060
Interest receivable (18,088)
Other receivables 56,916 (61,027)
Costs and estimated earnings in
excess of billings on
uncompleted contracts (129,156) 472,937
Prepaid expenses 8,019 (1,219)
Prepaid income taxes 7,800 (103,000)
Accounts payable 1,817,676 (183,898)
Accrued expenses 513,914 (93,119)
Billings in excess of costs
and estimated earnings on
uncompleted contracts 122,466 131,095
Income taxes payable (65,950)
------------ -----------
Total adjustments 1,108,359 781,441
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,840,170 $ 579,294
============ ===========
SEE NOTES TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT.
-5-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 1 - DESCRIPTION OF OPERATIONS
Underground Specialties, Inc. was incorporated on August 1, 1989, under the laws
of the State of Washington. The Company engages primarily in the construction of
underground utilities for national telecommunications companies in the Western
United States. The work is performed under cost-plus-fee contracts, fixed price
contracts, fixed priced contracts modified by incentive and penalty provisions
and unit price contracts. The length of the Company's contracts varies, but is
typically less than one year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Accounting for construction contracts - Revenues from fixed-price, unit
and cost-plus construction contracts are recognized on the
percentage-of-completion method. Estimated contract earnings are accrued by the
ratio of costs incurred to estimated total costs (cost-to-cost method). Because
of the inherent uncertainties in estimating earnings and costs it is at least
reasonably possible that the estimates used will change within the near term.
Contract costs include all direct material, subcontract, equipment and
labor costs and those indirect costs related to contract performance, such as
indirect labor, supplies, tools, repairs, insurance and depreciation. General
and administrative costs are charged to expense as incurred.
Provisions for projected losses on uncompleted contracts are accrued in
their entirety in the period in which such losses are determined. Changes in job
performance, job conditions and estimated profitability are recognized in the
period in which the revisions are determined.
Revenues from claims on construction contracts are recorded in the period
in which the claim arises if it is probable that the claim will result in
additional contract revenue and the amount can be reliably estimated. Revenues
from claims are recorded only to the extent of contract costs relating to the
claim. Settlement proceeds received in excess of recorded claims are recognized
as revenue in the period of recovery.
(b) Property, equipment and depreciation - Property and equipment are
stated at cost. Maintenance, repairs and routine replacements are charged to
expense as incurred; improvements are capitalized. Gains or losses realized from
sales or retirements are included in income. Depreciation is computed utilizing
primarily the straight-line method over five to seven years for equipment and
vehicles and forty years for leasehold improvements.
-6-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(c) Income taxes - Certain amounts of income and expenses are reported in
different periods for income tax reporting purposes than for financial reporting
purposes. The tax effect of such temporary differences, calculated using the
asset and liability method in accordance with Financial Accounting Standards
Board No. 109, is included in the provision for deferred income taxes.
The principal temporary differences arise from:
Straight-line depreciation is used for financial reporting purposes
and accelerated depreciation methods are used for income tax reporting
purposes.
Revenues and costs related to construction contracts in progress are
recorded using the percentage-of-completion method for financial reporting
purposes while the completed contract method is used for income tax
reporting purposes.
The Company changed accounting methods for income tax reporting
purposes from the cash method to the completed contract method for the year
ended July 31, 1995. As a result of this change, an adjustment to reconcile
the two methods is required for income tax reporting purposes.
(d) Cash and cash equivalents - For purposes of the statement of cash
flows, cash and cash equivalents include all time deposits, repurchase
agreements, money market accounts, cash overdrafts and highly liquid investments
purchased with maturities of three months or less.
(e) Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
-7-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 3 - MARKETABLE SECURITIES
At July 31, 1998 and 1997, the marketable securities portfolio was
comprised of securities classified as available for sale in conjunction with the
adoption of FASB 115, resulting in investment securities available for sale
being carried at fair value.
The cost and fair values of marketable securities available for sale at
July 31, 1998, were:
FAIR UNREALIZED
AVAILABLE FOR SALE: COST VALUE GAIN (LOSS)
-------- --------- ----------
Microsoft Corporation $ 34,260 $ 91,619 $ 57,359
Allied Signal 53,479 48,095 (5,384)
Boeing Company 14,696 10,695 (4,001)
General Electric Company 29,053 34,498 5,445
General Motors 9,249 10,311 1,062
Texaco 6,291 5,701 (590)
Raytheon Company 407 407
Zitel Corp. 15,524 4,124 (11,400)
Open Market, Inc. 52,305 22,794 (29,511)
Sharper Image Corp. 115,780 58,075 (57,705)
-------- --------- --------
$330,637 $ 286,319 $(44,318)
======== ========= ========
There were no sales of marketable securities available for sale for the
year ended July 31, 1998. Included in stockholders' equity at July 31, 1998, is
$44,318 of net unrealized holding losses on marketable securities available for
sale.
-8-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 3 - MARKETABLE SECURITIES, CONTINUED
The cost and fair values of marketable securities available for sale at
July 31, 1997, were:
FAIR UNREALIZED
AVAILABLE FOR SALE: COST VALUE GAIN (LOSS)
-------- --------- ----------
Microsoft Corporation $ 34,260 $ 61,498 $ 27,238
Allied Signal 10,426 13,838 3,412
Boeing Company 14,696 17,606 2,910
General Electric Company 29,053 28,050 (1,003)
-------- -------- --------
$ 88,435 $120,992 $ 32,557
======== ======== ========
There were no sales of marketable securities available for sale for the
year ended July 31, 1997. Included in stockholders' equity at July 31, 1997, is
$32,557 of net unrealized holding gains on marketable securities available for
sale.
NOTE 4 - CONSTRUCTION CONTRACTS RECEIVABLE
Construction contracts receivable, pledged as collateral for the note
payable to bank (Note 9), comprise:
1998 1997
---------- ----------
Construction contracts receivable $2,327,636 $ 944,994
Retention receivable on construction contracts 1,137,200 153,580
Related party receivables 17,015 18,617
---------- ----------
$3,481,851 $1,117,191
========== ==========
Management believes that all accounts receivable as of July 31, 1998 and
1997, were fully collectible; therefore, no allowance for doubtful accounts was
recorded. During the years ended July 31, 1998 and 1997, any bad debts that were
determined to have conclusively occurred were expensed accordingly.
-9-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 4 - CONSTRUCTION CONTRACTS RECEIVABLE, CONTINUED
The Company provides services on credit to many of its customers, the
majority of which are telecommunications companies in the Western United States.
The Company performs ongoing credit evaluations of its customers and, generally,
requires no collateral.
The Company's majority stockholder also owns a minority ownership in a
specialty contracting business which performs services for Underground
Specialties, Inc. At July 31, 1998 and 1997, the receivable from this related
party was $17,015 and $18,617, respectively.
NOTE 5 - OTHER RECEIVABLES
Other receivables comprise:
1998 1997
-------- --------
Equipment sale proceeds receivable $ 7,032 $ 70,000
Washington excise tax audit refund 67,672
Employee advance 3,578
Insurance refund 7,180
-------- --------
$ 17,790 $137,672
======== ========
NOTE 6 - CONSTRUCTION CONTRACTS IN PROGRESS
Construction contracts in progress comprise:
1998 1997
----------- ----------
Costs and estimated earnings:
Costs incurred to date $11,660,299 $2,154,927
Estimated earnings to date 5,195,745 292,708
----------- ----------
16,856,044 2,447,635
Billings to date on uncompleted
construction contracts 16,813,085 2,411,366
----------- ----------
$ 42,959 $ 36,269
=========== ==========
-10-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 6 - CONSTRUCTION CONTRACTS IN PROGRESS, CONTINUED
Included in the balance sheets under the following captions:
1998 1997
--------- ---------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 303,098 $ 173,942
Billings in excess of costs and estimated
earnings on uncompleted contracts (260,139) (137,673)
--------- ---------
$ 42,959 $ 36,269
========= =========
NOTE 7 - NOTE RECEIVABLE - STOCKHOLDER
The note receivable from stockholder is comprised of a 6.0% unsecured note.
Interest income earned on the note receivable was $14,512 and $11,743 for the
years ending July 31, 1998 and 1997, respectively. The note was paid in full
prior to July 31, 1998.
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment, partially pledged as collateral for long-term debt
(Note 12), comprises:
1998 1997
---------- ----------
Machinery $2,354,781 $1,558,078
Vehicles 1,071,261 1,170,211
Office equipment 59,709 50,354
Leasehold improvements 107,675 107,675
---------- ----------
3,593,426 2,886,318
Less accumulated depreciation 1,445,864 1,112,467
---------- ----------
$2,147,562 $1,773,851
========== ==========
Depreciation expense charged to operations for the years ended July 31,
1998 and 1997, was $574,929 and $613,213, respectively. Depreciation and
accumulated depreciation includes amortization expense and accumulated
amortization of equipment under capital leases.
-11-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 9 - NOTE PAYABLE TO BANK
The Company maintains a revolving line of credit with Pacific Northwest
Bank. Funds are available to a maximum of $1,250,000 and are collateralized by
construction contracts receivable owned by the Company. The line of credit
expires on December 5, 1998 and the interest is payable monthly at the Bank's
prime rate plus 1.0 percent (9.5% at July 31, 1998 and 1997). Additional
unlimited guarantees have been provided by the majority stockholder.
The Company had outstanding borrowings against the line of credit at July
31, 1998 and 1997, of $450,000 and $720,000, respectively.
NOTE 10 - ACCRUED EXPENSES
Accrued expenses comprise:
1998 1997
-------- --------
Payroll $ 43,937 $ 51,907
Employee bonuses 402,082
Payroll taxes and benefits 46,383 40,911
Sales and use taxes 31,667 31,866
Qualified deferred compensation and profit
sharing contribution 122,810 9,920
Property taxes 8,458 6,819
-------- --------
$655,337 $141,423
======== ========
NOTE 11 - CAPITAL LEASE
The Company acquired a radio system under the provisions of a capital lease
obligation. For financial reporting purposes, minimum lease payments relating to
the radio system have been capitalized. The lease expired in July 1998. The
obligation under the capital lease has been recorded in the accompanying
financial statements at the present value of future minimum lease payments. As
of July 31, 1998 and 1997, the capitalized cost of the equipment is $20,017,
accumulated amortization is $6,672 and $2,669, respectively and the equipment
has a net book value of $13,345 and $17,348, respectively.
-12-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 12 - LONG-TERM DEBT
Long-term debt at July 31, 1998, comprises:
CURRENT LONG-TERM
TOTAL PORTION PORTION
----- ------- -------
Notes payable to JI Case Credit Corp.
in aggregate monthly installments of
$12,294 including interest at 5.9% to
7.9%, maturing through June, 2000,
secured by equipment $ 172,213 $111,061 $ 61,152
Notes payable to Pacific Northwest
Bank in aggregate monthly installments
of $35,910 including interest from 8%
to 9%, maturing through July, 2001,
secured by equipment 799,319 338,974 460,345
Notes payable to US Bank in aggregate
monthly installments of $12,797
including interest from 8% to 8.9%,
maturing through February, 2000,
secured by equipment 163,826 118,038 45,788
---------- -------- --------
$1,135,358 $568,073 $567,285
========== ======== ========
Future maturities of long-term debt at July 31, 1998, are as follows:
Year ending July 31, 1999 $ 568,073
2000 357,371
2001 209,914
----------
$1,135,358
==========
-13-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 12 - LONG-TERM DEBT, CONTINUED
Long-term debt at July 31, 1997, comprises:
CURRENT LONG-TERM
TOTAL PORTION PORTION
----- ------- -------
Notes payable to JI Case Credit Corp.
in aggregate monthly installments of
$9,352 including interest from 6.9% to
10.25%, maturing through June, 2000,
secured by equipment $ 206,237 $ 88,599 $117,638
Notes payable to The CIT Group in
aggregate monthly installments of
$7,814 including interest from 8% to
14.8%, maturing through June, 1998,
secured by equipment 54,152 54,152
Notes payable to Pacific Northwest
Bank in aggregate monthly installments
of $20,522 including interest from 8%
to 9%, maturing through July, 2000,
secured by equipment 402,962 195,658 207,304
Notes payable to US Bank in aggregate
monthly installments of $12,797
including interest from 8% to 8.9%,
maturing through March, 2000,
secured by equipment 296,959 133,635 163,324
---------- -------- --------
$ 960,310 $472,044 $488,266
========== ======== ========
Future maturities of long-term debt at July 31, 1997, are as follows:
Year ending July 31, 1998 $ 472,044
1999 349,801
2000 138,465
----------
$ 960,310
==========
-14-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 13 - INCOME TAXES
Deferred tax assets (liabilities) as of July 31, 1998 and 1997, consists of
the following:
1998 1997
--------- ---------
Current:
Federal $ 39,605
State (6,405)
---------
Total Current $ 33,200
=========
Non-current:
Federal $(441,347) $(110,925)
State (235,153) (5,475)
--------- ---------
Total Non-current $(676,500) $(116,400)
========= =========
The Company's deferred tax assets (liabilities) represent the tax effects
of taxable temporary differences in financial and tax reporting.
Income tax benefit (provision) for the years ended July 31, 1998 and 1997,
consists of the following:
1998 1997
--------- ---------
Current:
Federal $ (540,000) $ (1,643)
State 3,200 (6,052)
----------- ---------
Total Current (536,800) (7,695)
----------- ---------
Deferred:
Federal (370,027) 90,270
State (223,273) 28,730
----------- ---------
Total Deferred (593,300) 119,000
----------- ---------
$(1,130,100) $ 111,305
=========== =========
-15-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 13 - INCOME TAXES, CONTINUED
On a tax filing basis at July 31, 1998, net operating losses of
approximately $1,950,000 are available to offset future taxable income through
the year 2113 and alternative minimum tax credits of approximately $715,500 are
available to offset future income taxes, indefinitely.
The income tax provision differs from the federal statutory rate of 34%
primarily due to state income taxes accrued and the benefit of federal tax
brackets.
NOTE 14 - NON-CASH INVESTING AND FINANCING ACTIVITIES
The total property and equipment purchases made during the year ended July
31, 1998, totaled $1,101,351. Of that amount, $1,033,930 was purchased with
cash, and equipment valued at $67,421 was traded.
The total property and equipment purchases made during the year ended July
31, 1997, totaled $994,400. Of that amount, $226,142 was purchased with cash,
$675,082 was financed with long-term debt and equipment valued at $93,176 was
traded.
NOTE 15 - BACKLOG
In addition to construction contracts in progress at July 31, 1998, the
Company has secured additional contracts which will generate revenue of
approximately $200,000.
NOTE 16 - MAJOR CUSTOMERS
A material portion of the Company's operating services is provided for a
limited number of customers. All work performed is awarded by competitive bid,
and economic dependency by any one customer is not considered by management to
be relevant to continuing operations.
For the year ended July 31, 1998, one customer accounted for approximately
86% of the Company's revenues. For the year ended July 31, 1997, two customers
accounted for approximately 39% and 18%, respectively, of the Company's
revenues.
NOTE 17 - OPERATING LEASES
The Company leases office and shop space in Mukilteo, Washington under a
month to month agreement. Lease expense was $33,000 for each of the years ended
July 31, 1998 and 1997.
-16-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 17 - OPERATING LEASES, CONTINUED
The Company leases office and shop space in Bend, Oregon under an agreement
which expires December 31, 1998. Monthly lease expense is $2,500. Lease expense
for the year ended July 31, 1998, was $12,500.
The Company also leases adjoining shop space in Bend, Oregon under an
agreement which expires August 24, 1998. Lease expense for the year ended July
31, 1998, was $10,000.
The Company leases a yard and shop space in Burns, Oregon under a month to
month agreement. Lease expense for the year ended July 31, 1998, was $4,800.
NOTE 18 - RELATED PARTY TRANSACTIONS
OPERATING LEASES
----------------
The Company leases land from the majority stockholder on a month to month
basis. Lease expense was $42,400 and $39,600 for the years ended July 31, 1998
and 1997, respectively.
The Company also leases equipment and vehicles from the majority
stockholder on a month to month basis. The Company is responsible for the
repairs and maintenance, insurance and other expenses related to the equipment
and vehicles. Lease expense was $4,058 and $9,738 for the years ended July 31,
1998 and 1997, respectively.
SALES/PURCHASES
---------------
The Company's majority stockholder owns a one third interest in a specialty
contracting business, Fiber Flow, Inc., which the Company performs business
within the ordinary course of operations. During the years ended July 31, 1998
and 1997, the Company had sales to this company of $23,968 and $22,960 and
purchases from the company of $246,532 and $228,825, respectively.
The Company also had sales to Sorenson Construction, Inc., and Sorenson
Leasing, L.L.C. related parties, of $10,778 during the year ended July 31, 1997.
Purchases from the companies totaled $106,418 and $38,118 for the years ending
July 31, 1998 and 1997, respectively.
-17-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 19 - STOCK SPLIT
During the year ending July 31, 1997, the Board of Directors authorized a 1
for 2,000 stock split of the Company's outstanding no par value common stock.
The Company also amended the articles of incorporation to authorize the Company
to issue a total of 2,000,000 shares.
The Company has 2,000,000 shares authorized of which 1,000,000 shares were
issued and outstanding as of July 31, 1998 and 1997.
NOTE 20 - QUALIFIED DEFERRED COMPENSATION
On January 1, 1995, the Company adopted a salary reduction plan under the
provisions of the Internal Revenue Code Section 401(k). Employees eligible to
participate in the plan must have completed twelve months of service, worked
more than 1,000 hours during the plan year and attained the age of 21. The
Company matches 40% of the employees' salary reduction contribution up to a
maximum of 6% of the employees' salary. The Company made matching contributions
amounting to $30,969 and $9,611 for the years ended July 31, 1998 and 1997,
respectively.
In conjunction with the salary reduction plan, the Company implemented a
defined contribution profit sharing plan. Employees eligible to participate in
the plan must have completed twelve months of service, worked more than 1,000
hours during the plan year and must have attained the age of 21. Contributions
to the profit sharing plan are at the discretion of the Company's management.
Contributions of $100,000 and $12,000 were paid or accrued for the years ended
July 31, 1998 and 1997, respectively.
NOTE 21 - LIFE INSURANCE
The Company maintains life insurance on six of its key employees. Under the
terms of the life insurance policies, the Company is the named beneficiary for
all of the policies totaling $900,000 on these employees. Upon death of a key
employee, the Company will distribute forty percent of the death benefit to the
family as a salary continuation.
-18-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
----------
NOTE 22 - CONCENTRATIONS OF CREDIT RISK
CONCENTRATION OF CASH ON DEPOSIT AND UNINSURED BALANCES
-------------------------------------------------------
The Company has concentrated its credit risk for cash by maintaining
deposits in a financial institution within the geographic region of Seattle,
Washington which may at times exceed amounts covered by insurance provided by
the US Federal Deposit Insurance Corporation (FDIC). The maximum loss that would
have resulted from that risk totaled approximately $1,300,000 at July 31, 1998,
and $270,000 at July 31, 1997, for the excess of the deposit liabilities
reported by the bank over the amounts that would have been covered by federal
insurance. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk to cash.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
------------------------------------------------------
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and construction contracts receivable. The Company places its temporary cash
investments with financial institutions in their money market accounts. At July
31, 1998 and 1997, the Company had cash on deposit with two brokerage money
market accounts of $122 and $18,801, respectively, none of which is insured by
the FDIC. Due to the stability of both companies, none of these funds are
considered to be at significant risk. Concentrations of credit risk with respect
to trade receivables are limited due to the ongoing credit evaluations of its
customers' financial condition and the Company generally requires no collateral
from its customers.
NOTE 23 - COMMITMENTS AND CONTINGENCIES
On September 4, 1998, the Company merged with White Mountain Cable
Construction Company. The stockholders of the Company received cash and stock of
Arguss Holdings, Inc., the parent company of White Mountain Cable Construction
Company.
-19-
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
UNDERGROUND SPECIALTIES, INC.
SCHEDULE OF CONTRACT EARNINGS
YEAR ENDED JULY 31, 1998
----------
<TABLE>
<CAPTION>
EARNINGS
(LOSSES) EARNINGS
TOTAL RECOGNIZED (LOSSES)
GROSS TOTAL CONTRACT THROUGH FOR THE
CONTRACT CONTRACT EARNINGS JULY CURRENT
CONTRACT DESCRIPTION PRICE COSTS (LOSSES) 31, 1997 YEAR
- ---------------------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
UTD/Sprint - Shady Cove $ 795,230 $ 716,995 $ 78,235 $ 73,783 $ 4,452
U.S. West - Bellingham 235,242 225,195 10,047 12,796 (2,749)
AT&T - Corvallis 838,646 841,718 (3,072) (1,350) (1,722)
Worldcom - Sea Road Overlay 330,227 214,336 115,891 101,666 14,225
WAHCO - USW Unit Zonal 391,494 400,642 (9,148) (9,148)
UTD/ Sprint - Poulsbo/Lincoln 143,172 132,090 11,082 11,082
Olympus Terrace - Mukilteo 172,410 191,403 (18,993) (18,993)
UTD/Sprint - Wapato 149,585 87,239 62,346 62,346
City of Seattle - Sewer 241,653 163,437 78,216 78,216
U.S. West - Lake Samamish 194,047 191,183 2,864 2,864
Contracts under $100,000 779,433 540,180 239,253 105,813 133,440
---------- ---------- --------- --------- ----------
$4,271,139 $3,704,418 $ 566,721 $ 292,708 274,013
========== ========== ========= =========
Contracts in progress, earnings accrued to date 5,195,745
Under allocated equipment and overhead costs (97,307)
----------
Gross profit $5,372,451
==========
</TABLE>
SEE INDEPENDENT AUDITORS' REPORT.
-20-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
SCHEDULE OF CONTRACT EARNINGS
YEAR ENDED JULY 31, 1997
----------
<TABLE>
<CAPTION>
EARNINGS EARNINGS
TOTAL RECOGNIZED (LOSSES)
GROSS TOTAL CONTRACT THROUGH FOR THE
CONTRACT CONTRACT EARNINGS JULY CURRENT
CONTRACT DESCRIPTION PRICE COSTS (LOSSES) 31, 1996 YEAR
- ---------------------------------- ----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
A T & T - Grants Pass $ 2,952,997 $2,405,917 $ 547,080 $ 589,382 $(42,302)
Worldcom - Renton/Seattle 1,878,628 1,707,220 171,408 4,461 166,947
Doelker - Powers 43,008 21,216 21,792 18,335 3,457
WAHCO - GTE Unit Gross 428,049 444,489 (16,440) 40,666 (57,106)
WAHCO - USW Unit Gross 427,848 357,554 70,294 79,888 (9,594)
WAHCO - GTE Unit Gross 185,605 198,508 (12,903) 276 (13,179)
USW - Estes Lake 583,231 493,627 89,604 89,352 252
USW - Estes Carriage 775,730 603,596 172,134 162,444 9,690
WAHCO - USW Unit Gross 458,340 450,765 7,575 7,575
WA - Patterson 85,888 72,342 13,546 13,546
WA - Kalama/Tenino 309,009 161,924 147,085 147,085
ID - Mountain Home 404,914 327,600 77,314 77,314
Worldcom - WA - Issaquah 982,406 866,737 115,669 115,669
US West - ID - Kuna/Boise 205,893 188,131 17,762 17,762
WAHCO - USW Units Gross 85,235 74,174 11,061 11,061
WAHCO - USW Units Gross 40,560 30,375 10,185 10,185
Contracts under $75,000 163,607 141,527 22,080 22,080
----------- ---------- ---------- --------- --------
$10,010,948 $8,545,702 $1,465,246 $ 984,804 480,442
=========== ========== ========== =========
Contracts in progress, earnings accrued to date 292,708
Under allocated equipment and overhead costs (565,871)
--------
Gross profit $207,279
========
</TABLE>
SEE INDEPENDENT AUDITORS' REPORT.
-21-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
SCHEDULE OF CONSTRUCTION CONTRACTS IN PROGRESS
JULY 31, 1998
----------
<TABLE>
<CAPTION>
CONTRACT
TOTAL REVISED ESTIMATE EARNINGS
-------------------------------------------- COSTS (LOSSES)
EARNINGS INCURRED ACCRUED
CONTRACT DESCRIPTION REVENUE COSTS (LOSSES) TO DATE TO DATE
- ---------------------------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
FTV - Pine Grove to Vale $18,556,386 $12,667,490 $ 5,888,896 $10,992,621 $ 5,110,279
Town of Hunts Point 408,973 513,793 (104,820) 463,660 (104,820)
Enron - Mt. Hood 2,000,000 1,100,000 900,000 131,077 107,245
Great S.W. - Ross to Malin 106,290 38,500 67,790 19,662 34,620
Enron - Boring to Clackamas 1,195,318 753,638 441,680 4,212 2,469
Other Small Projects 110,591 56,504 54,087 49,067 45,952
----------- ----------- ------------ ----------- ------------
$22,377,558 $15,129,925 $ 7,247,633 $11,660,299 $ 5,195,745
=========== =========== ============ =========== ============
COSTS AND BILLINGS IN
COSTS AND ESTIMATED EXCESS OF
ESTIMATED EARNINGS IN COSTS AND
EARNINGS BILLINGS EXCESS OF ESTIMATED
CONTRACT DESCRIPTION TO DATE TO DATE BILLINGS EARNINGS
- ---------------------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
FTV - Pine Grove to Vale $16,102,900 $16,346,077 $243,177
Town of Hunts Point 358,840 360,230 1,390
Enron - Mt. Hood 238,322 $238,322
Great S.W. - Ross to Malin 54,282 54,282
Enron - Boring to Clackamas 6,681 6,681
Other Small Projects 95,019 106,778 3,813 15,572
----------- ----------- -------- --------
$16,856,044 $16,813,085 $303,098 $260,139
=========== =========== ======== ========
</TABLE>
SEE INDEPENDENT AUDITORS' REPORT.
-22-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
SCHEDULE OF CONSTRUCTION CONTRACTS IN PROGRESS
JULY 31, 1997
----------
<TABLE>
<CAPTION>
CONTRACT
TOTAL REVISED ESTIMATE EARNINGS
-------------------------------------------- COSTS (LOSSES)
EARNINGS INCURRED ACCRUED
CONTRACT DESCRIPTION REVENUE COSTS (LOSSES) TO DATE TO DATE
- ---------------------------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
UTD/Sprint - Shady Cove $ 795,230 $ 713,000 $ 82,230 $ 639,757 $ 73,783
U.S. West - Bellingham 230,000 215,000 15,000 183,410 12,796
AT&T - Bybee Bridge 58,755 42,128 16,627 23,516 9,281
Worldcom - Sea Rd Overlay 328,385 210,000 118,385 180,343 101,666
TF Austin - San Diego
TESMEC 62,000 22,000 40,000 7,439 13,525
Eq. Rent - Bothell TESMEC 17,368 8,400 8,968 2,316 2,473
U.S. West - Silverdale 75,000 60,000 15,000 10,230 2,558
UTD - Renton 2,350 1,741 609 0 0
AT&T - BUCODA 71,671 41,509 30,162 40,942 29,751
Schenck - Anchorage 35,850 9,807 26,043 9,807 26,043
AT&T - Corvallis 838,647 840,000 (1,353) 838,040 (1,350)
U.S. West - Bellevue 77,156 56,444 20,712 56,140 20,600
U.S. West - Unit Z 1-SEA 88,676 85,275 3,401 80,684 3,218
U.S. West - Unit Z-2 BLHM 15,003 15,529 (526) 11,833 (401)
U.S. West - Unit Zone 1 109,252 111,201 (1949) 70,470 (1,235)
----------- ----------- ------------ ----------- ------------
$ 2,805,343 $ 2,432,034 $ 373,309 $ 2,154,927 $ 292,708
=========== =========== ============ =========== ============
COSTS AND BILLINGS IN
COSTS AND ESTIMATED EXCESS OF
ESTIMATED EARNINGS IN COSTS AND
EARNINGS BILLINGS EXCESS OF ESTIMATED
CONTRACT DESCRIPTION TO DATE TO DATE BILLINGS EARNINGS
- ---------------------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
UTD/Sprint - Shady Cove $ 713,540 $ 770,586 $ 57,046
U.S. West - Bellingham 196,206 132,302 $ 63,904
AT&T - Bybee Bridge 32,797 38,191 5,394
Worldcom - Sea Rd Overlay 282,009 314,661 32,652
TF Austin - San Diego
TESMEC 20,964 23,200 2,236
Eq. Rent - Bothell TESMEC 4,789 17,368 12,579
U.S. West - Silverdale 12,788 37,946 25,158
UTD - Renton 0 2,350 2,350
AT&T - BUCODA 70,693 70,951 258
Schenck - Anchorage 35,850 35,850
AT&T - Corvallis 836,690 830,988 5,702
U.S. West - Bellevue 76,740 50,715 26,025
U.S. West - Unit Z 1-SEA 83,902 43,919 39,983
U.S. West - Unit Z-2 BLHM 11,432 1,184 10,248
U.S. West - Unit Zone 1 69,235 41,155 28,080
----------- ----------- -------- --------
$ 2,447,635 $ 2,411,366 $173,942 $137,673
=========== =========== ======== ========
</TABLE>
SEE INDEPENDENT AUDITORS' REPORT.
-23-
<PAGE>
UNDERGROUND SPECIALTIES, INC.
SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED JULY 31, 1998 AND 1997
----------
1998 1997
---------- ---------
Employee bonuses $1,872,778 $125,134
Officers' salary 137,413 172,661
Payroll taxes and benefits 118,413 59,251
Profit sharing contribution 100,000 12,000
Office salaries 71,444 113,792
Meals, travel and entertainment 47,292 49,302
Legal and accounting 44,095 27,139
Office expenses 35,988 32,901
Telephone and utilities 17,114 17,135
Advertising 10,543 13,199
Depreciation 8,103 7,903
Bank charges 7,038 7,437
Rent 5,500 6,600
Insurance 5,233 10,122
Dues and subscriptions 3,998 3,388
Taxes and licenses 1,851 2,515
Bad debts 1,185 10,509
Donations 1,090 3,382
Penalties 2,824
Other expenses 1,405
---------- --------
$2,490,483 $677,194
========== ========
SEE INDEPENDENT AUDITORS' REPORT.
-24-
<PAGE>
Pro Forma Financial Information
The accompanying pro forma consolidated statements of operations present the
results of operations of Arguss and Underground Specialties, Inc. ("USI") as if
the acquisition of USI had occurred as of January 1, 1997. The pro forma
consolidated balance sheet reflects the pro forma consolidated financial
position of the companies as if the acquisition had occurred June 30, 1998. The
pro forma information reflects the total non-contingent consideration paid,
including the issuance of approximately 242,000 shares of Arguss' common stock
(See Item 2. for details.) The pro forma data is not necessarily indicative of
what the results would have been if the acquisition had occurred on the dates
indicated.
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 1998
<TABLE>
<CAPTION>
USI
Arguss as Acquisition As Pro Forma Consolidated
Reported (A) Reported Adjustments Pro Forma
------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Cash $ 1,601,000 $2,312,000 ($ 320,000)(1) $ 3,593,000
Restricted Cash from
Customer Advances 8,647,000 8,647,000
Accounts Receivable 28,235,000 4,553,000 32,788,000
Unbilled Receivables
for Materials 6,280,000 6,280,000
Inventories 4,468,000 4,468,000
Other Assets,Current 1,395,000 419,000 1,814,000
------------ ---------- ---------- ------------
Total Current Assets 50,626,000 7,284,000 (320,000) 57,590,000
Property, Equipment 23,194,000 1,512,000 24,706,000
Goodwill, Net 50,441,000 3,970,000(2) 54,411,000
------------ ---------- ---------- ------------
TOTAL ASSETS $124,261,000 $8,796,000 $3,650,000 $136,707,000
============ ========== ========== ============
Current Liabilities $ 44,369,000 $5,647,000 $ 50,016,000
Non-Current Liabilities 22,119,000 299,000 $3,500,000(3) 25,918,000
------------ ---------- ---------- ------------
TOTAL LIABILITIES 66,488,000 5,946,000 3,500,000 75,934,000
------------ ---------- ---------- ------------
Stockholders' Equity 57,773,000 2,850,000 150,000 60,773,000
------------ ---------- ---------- ------------
Stockholders' Equity 57,773,000 2,850,000 150,000(4) 60,773,000
------------ ---------- ---------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $124,261,000 $8,796,000 $3,650,000 $136,707,000
============ ========== ========== ============
</TABLE>
Notes to unaudited pro forma balance sheet:
(1) Reflects the cash element of the Company's acquisitions and other
acquisition costs.
(2) Reflects the estimated goodwill of the acquisition.
(3) Reflects acquisition financing of $3.5 million for the purchase of USI.
(4) Reflects the net adjustments to attain contractually established equity
value.
(A) Reported on Form 10-QSB filed August 6, 1998.
<PAGE>
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
USI
Arguss as Acquisition Pro forma Consolidated
Reported (A) As Reported Adjustments Pro Forma
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 53,284,000 $4,989,000 $ 58,273,000
Cost of Sales,
Excluding
Depreciation 37,636,000 4,716,000 42,352,000
------------ ---------- ------------
Gross Profit,
Excluding
Depreciation 15,648,000 273,000 15,921,000
Selling, General
& Administrative
Expenses 9,042,000 524,000 9,566,000
Depreciation 1,243,000 563,000 1,806,000
Goodwill
Amortization 946,000 198,000(1) 1,144,000
Engineering &
Development
Expenses 1,055,000 1,055,000
------------ ------------
Income (Loss)
from Operations 3,362,000 (814,000) (198,000) 2,350,000
Other (Expense)
Income (559,000) 175,000 (265,000)(2) (649,000)
------------ ---------- ---------- ------------
Income (Loss)
Before Taxes 2,803,000 (639,000) (463,000) 1,701,000
Income Taxes
(Benefit) 998,000 (245,000) (106,000)(3) 647,000
------------ ---------- ---------- ------------
Net (Loss)
Income $ 1,805,000 $ (394,000) $ (357,000) $ 1,054,000
============ ========== ========== ============
Basic Earnings
Per Share $ .24 $ .13
============ ============
Weighted Shares
Outstanding -
Basic 7,674,000 7,916,000(4)
============ ============
Earnings Per Share $ .22 $ .13
============ ============
Weighted Average
Shares Outstanding
- Diluted 8,061,000 8,303,000(4)
============ ============
</TABLE>
Notes to Unaudited Pro Forma Combined Statement of Operations:
(1) Reflects one-year amortization of $3,970,000 of goodwill over 20 years.
(2) Reflects adjustment for interest expense for $3,500,000 in acquisition
financing for USI.
(3) Reflects adjustment for income tax benefit related to pro forma interest
expense.
(4) Represents estimated shares issued for acquisition.
(A) Reported on Form 10-K filed on March 24, 1998.
<PAGE>
Unaudited Pro Forma Statement of Operations
For the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
USI
Arguss as Acquisition Pro forma Consolidated
Reported (B) As Reported Adjustments Pro Forma
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 59,402,000 $14,795,000 $ 74,197,000
Cost of Sales,
Excluding
Depreciation 44,604,000 9,632,000 54,236,000
------------ ---------- ------------
Gross Profit,
Excluding
Depreciation 14,798,000 5,163,000 19,961,000
Selling, General &
Administrative
Expenses 7,358,000 2,099,000 (1,250,000)(5) 8,207,000
Depreciation 2,795,000 246,000 3,041,000
Goodwill
Amortization 1,305,000 94,000(1) 1,399,000
Engineering &
Development
Expenses 543,000 543,000
------------ ------------
Income (Loss)
from Operations 2,797,000 2,818,000 1,156,000 6,771,000
Interest (Expense)
Income, Net (1,272,000) 9,000 (130,000)(3) (1,393,000)
------------ ---------- ---------- ------------
Income (Loss)
Before Taxes 1,525,000 2,827,000 1,026,000 5,378,000
Income Taxes 1,132,000 1,073,000 448,000(2) 2,653,000
------------ ---------- ---------- ------------
Net (Loss)
Income $ 393,000 $1,754,000 $ 578,000 $ 2,725,000
============ ========== ========== ============
Basic Earnings
(Loss) Per Share $ .04 $ .26
============ ============
Weighted Average
Shares Outstanding
- Basic 10,388,000 10,630,000(4)
============ ============
Earnings (Loss)
Per Share $ .04 $ .24
============ ============
Weighted Average
Share Outstanding
- Diluted 11,041,000 11,283,000(4)
============ ============
</TABLE>
(1) Reflects six-months' amortization of $3,970,000 of goodwill over 20 years.
(2) Reflects pro forma adjustment for income tax at an effective rate of 40%
for pro forma adjustments, except for goodwill amortization.
(3) Reflects adjustment for interest expense on $3,500,000 in acquisition
financing related to the purchase of USI.
(4) Represents estimate of additional shares issued for acquisition.
(5) Represents adjustment for salary expense consistent with Arguss'
compensation program.
(B) Reported on Form 10-QSB filed on August 6, 1998.
EXHIBIT 23.01
[Letterhead of Barrett & Company]
Consent of:
Barrett & Company,
Certified Public Accountants
We consent to the incorporation by reference of our report dated September
10, 1998, filed As an exhibit to the Arguss Holdings, Inc. (the "Company") Form
8-K dated September 4, 1998 (the "Form 8-K"), in the Company's Registration
Statement on Form S-8 (Commission file No. 333-192777, in the Company's
Registration Statement on Form S-8 (Commission File No. 333-27017, in the
Company's Registration Statement on Form S-3 (Commission File No. 333-33083),
and in the Form 8-K.
/s/ Lance Barrett
- ----------------------
Lance Barrett
Vancouver, WA
September 16, 1998
